It's tempting to purchase a high-flying technology company. After all, they get a lot of attention from investors and the press.
But it's challenging to find long-term winners since new technology crops up all the time, and things change quickly. Hence, these stocks tend to have more volatility.
Personally, my favorite stock, the single one that I would hold if I couldn't own any others, is Costco (COST 0.76%). This retailer's simple business remains poised to continue generating handsome profit growth for the foreseeable future.
Image source: Getty Images.
Membership has privileges
For those unfamiliar with it, Costco charges an annual fee to shop at its warehouses. These massive spaces (147,000 square feet on average) sell a wide range of high-quality goods and services at low unit prices. In fact, it offers just about everything you can imagine.
Renewal rates remain high. They have consistently hovered at about 90%. Additionally, Costco has consistently grown its paid membership over the years. During the latest fiscal year, which ended on Sept. 1, 2024, paid members totaled 76.2 million, up from 71 million the previous year.
Management raised the membership fee effective Sept. 1. The increase didn't deter new membership growth, however. Paid members grew to 78.4 million during the first half of the current fiscal year, which ended on Feb. 16
The company's execution has led to strong sales and profit growth. In the second quarter, same-store sales (comps), removing the impact of price changes on gasoline prices and foreign currency translation effects, gained 22.2%. Operating income grew 12.3% to $2.3 billion.
Growth opportunity
With its simple formula and strong execution, Costco has steadily been expanding its number of warehouses.
It has been adding 20 to 30 new locations annually, including 29 last year. It ended the year with 890 warehouses and opened another seven in the first half of this year.
Costco has more than two-thirds of its warehouses in the United States. However, its concept works outside of the United States, too. Out of the nine new locations it plans to open in March and April, two are outside the country, with one apiece in Japan and Australia.
Better valuation
The stock has been a standout performer for a long time. In the last five years through March 14, Costco's shares gained more than 223% compared to 138% for the S&P 500 index.
NASDAQ: COST
Key Data Points
However, due in part of the market's weakness lately, the shares have given back some gains. The stock has dropped about 14.6% since the start of the year.
Costco's shares were also trading at a high valuation, making it vulnerable to market weakness. Earlier this year, the stock had a price-to-earnings (P/E) ratio of well over 60. With the share price drop, it currently has a P/E of 53. While that's still not cheap relative to the S&P 500's 28, I believe Costco's consistent profit growth and expansion opportunities warrant a higher P/E multiple.
Sometimes, the flashy stock that gets a lot of press attention pans out over the long haul. Often, it doesn't as competitors creep in or the company fails to meet its long-term promise.
You don't have to worry about that with Costco. It may have a simple business, but it's long been profitable, and it's tough for other retailers to offer the same breadth and quality of products at such attractive prices.
That's why Costco tops my list of stocks to hold.
